Nakayama Steel completes share placement, expects to return to profit

Nippon Steel & Sumitomo Metal Corp (NSSMC) has raised its minority stake in Nakayama Steel, as part of a deal to restructure the latter after years of losses.

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Nakayama Steel issued about ¥9 billion ($93.5 million) in new shares under a private placement to NSSMC, Japan’s biggest steelmaker. This raised NSSMC’s share of voting rights in Nakayama to 16.9%, from 10.05%.

NSSMC’s trading wing Nippon Steel Trading holds an additional 8.5% stake in Nakayama.

In late June, Nakayama reached an agreement with about 40 lenders to write off ¥60.2 billion ($625 million) in loans, or slightly more than 60% of their total lending to the Osaka-based firm.

The bulk of the debt held by the smaller banks will be acquired by the Regional Economy Vitalization Corp of Japan, whose mission is to help financially troubled small and medium-sized companies, in return for guarantees that they continue loaning money to the steelmaker.

Meanwhile, the company has said that it expects to post its first pre-tax profit in five years for the fiscal year ending March 31 as it improves profitability through a consolidation of resources.

That includes a move to turn five group companies into wholly owned units, focusing on its steel bar operations and pulling out of non-profitable segments such as plate production.

The company is projecting a pre-tax profit of ¥2 billion ($20.8 million) as compared with a loss of ¥6 billion ($62.3 million) last year, despite sales revenues declining to ¥135 billion ($1.4 billion) from ¥141 billion ($1.5 billion).

It also expects to post a ¥68.5 billion ($711.5 million) net profit versus a ¥56.75 billion ($589.5 million) net loss last year.

For the first quarter ended June, the company posted a pre-tax profit of ¥401 million ($4.2 million) and a net profit of ¥81 million ($841,392) despite a 19% slide in sales to ¥30.8 billion ($319.9 million).